Property owners along the Gulf and East coasts are in a panic over projections of outrageous property flood insurance rates that, in some cases, could lead to increases of greater than 1000 per cent. Louisiana newspapers have reported proposed massive increases all over south Louisiana. The Lake Charles American Press reports that properties in suburban New Orleans could see rate increases going from $400 to $28,000 dollars. Is that an exaggeration? Yes. Is there really a problem finding affordable flood insurance along America’s coasts? Yes, and a growing one.
The current national flood insurance program has been around since 1968. Actually, it was created not so much because of hurricane damage, but due to widespread flooding along the Mississippi River in the early 1960s. More and more levees were built up and down the river, which created major flooding in unprotected areas. Private insurance companies could not handle the damage claims so the federal government stepped in. The program was extended to cover hurricane damage along the Gulf Coast, and if a homeowner didn’t get flood insurance, they were unable to get their home financed.
A year ago, Congress reauthorized the national flood insurance program through 2017. But in the process, a number of changes were made to make the program more financially sound. Many states that had little or no flooding were becoming more outspoken about taxpayers all over the country picking up the tab for the coastal states that often flood. Michigan Congresswoman, Candice Miller, who called for the program’s abolishment, was one of many outspoken critics. “The National Flood Program is a typical Washington boondoggle with an endless bureaucracy overseeing out of control spending.” She went on to say that since 1978, Michigan’s claims have totaled $45 million, as compared with $106 billion in Louisiana.
The new program caused rates to skyrocket along the Gulf Coast. As one can well imagine, the Louisiana congressional delegation, along with similar delegations all along the Gulf and East coasts, are screaming to high heaven, and demanding that the new program be delayed for another year. So how did all these members of congress, who are now in panic mode, vote on these increases last year? Every member of the Louisiana delegation, and virtually every senator and congressman along both coasts, voted for the new program and the huge rate increases. We often hear of how our representatives rarely read the laws they are voting for. This is certainly a classic example.
Louisiana US Senator, Mary Landrieu, recently issued an email alert to her supporters saying: "For a year now, I've been leading the effort in Congress to stop flood insurance from rising out of reach for the average homeowner and business owner.” Good to know Senator, but where was your concern last year when you voted to implement these high rate increases?
So far, about the only proposed solution is to delay the implementation of rate increases for a year. As Louisiana’s largest newspaper, The Time Picayune, lamented: “What is important at the moment is to slow things down so that homeowners aren't slammed by rates they cannot pay.”
But that’s only a temporary fix and little more than putting a finger in the dike. A long-term solution needs to be put in place to solve this financial headache once and for all.
How do we begin to solve the affordability problem? First of all, we need to recognize how vast this exposure for national disasters has become. I live in hurricane alley, and we all understand that hurricanes are a major part of the puzzle to be solved. Hurricane Sandy, which devastated coastlines of New York and New Jersey, show that this is not just a regional problem. All coastlines are at risk. Over half of all Americans live within 100 miles of the coast.
But hurricane protection is just one part of the problem. Right now, as you are reading this, twelve Midwestern states are experiencing widespread flooding. Torrential rains have unleashed a wave of damage that is wiping out thousands of homes. Without flood insurance, they are out of luck. And what about wildfires out west? My weekend national radio program is heard in Banning, California (KMET-1490 AM), where the local Banning News reports a brutal fire season with over 4300 wildfires that has burned some 111 square miles or more than 71,000 acres. Wildfires are a rampant and growing problem that needs a national insurance response. Then there’s the recent massive damage caused by tornados in Oklahoma, Alabama, Georgia, Kansas, and a host of other states.
Get my point? Natural disasters happen all over America, and have increased way beyond the ability for state programs to be effective and affordable. So has any plan been proposed which is encompassing, and yet affordable for homeowners that doesn’t use taxpayer dollars? Yes. A comprehensive proposal was unveiled back in May of 1995 at a catastrophe insurance conference held in New Orleans sponsored by the American Insurance Services Group. The speaker to the thousand plus in attendance was a wet behind the ears insurance commissioner from Louisiana. “The proposal calls for a Natural Disaster Insurance Corporation (NDIC) that would sell disaster reinsurance for residential and commercial properties while also providing primary coverage for residential properties,” he told the crowd.
Yes, I’m the culprit. I went on to tell the group that, “if a major hurricane strikes New Orleans, it could put 26 feet of water in the downtown area and cause insurance losses greater than $26 billion.” That’s right on the money as to what happened during Hurricane Katrina ten years later. I concluded by saying: “We are going to have a huge problem with catastrophic insurance losses all over America if we don't get a national disaster program in place.”
I testified a few months later before a Senate panel in Washington on Senate Bill 1350. Private insurance would take a small portion of its premiums and contribute to a state fund. The state fund would then be backed up by a national fund. The national fund could borrow to pay for any shortfall, but no federal tax dollars would be involved. Each state could buy in and have a rate set according to the risk. Hurricane prone states like Louisiana would pay in more than a state like North Dakota that experiences much less in natural disaster damage. The U.S. Senate adopted my proposal, but the legislation became hung up and died in the U.S. House of Representative’s. That was the plan then. And the good news is that a number of states are coalescing around this same plan now following the devastation of Hurricane Sandy.
It’s taken almost 20 years, but it looks like it could be the right time for problem solving. It’s just not a handout for the coastal states. The whole country will benefit. And at a price that’s affordable. We certainly cannot be any worse off than we are now.